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How to start a successful business by using the 80/20 rule

Business is full of counterintuitive axioms, and the 80/20 rule is no exception. In case you’re not already familiar with the 80/20 rule, it states that 20% of what you do is responsible for 80% of the results. The trick, of course, is to identify the important 20% and focus like a laser on that 20%.

In some ways, this seems like a pretty obvious and straightforward point. However, this is not how most of us naturally think about or accomplish tasks. Instead, most of us subconsciously give equal weight to all goals and all tasks on a checklist.

Most of us are pretty bad at prioritizing because school teaches and rewards exactly the opposite. We are taught from kindergarten to dutifully strive for 100% success on every task with 100% effort. We are also taught to identify and reinforce our weaknesses rather than to double down on our strengths.

The truth is that the “real world” revolves around scarcity — of time, resources, mental and physical energy, etc. Throwing 100% of your effort behind 100% of your goals or tasks is both highly inefficient and counterproductive.

Prioritize both goals and tasks

Prioritizing is a two-layer, multi-phase process. First you must prioritize your goals. For example, if you are starting an e-commerce business like I did, your top priority is to develop a website. Second, you must prioritize the tasks that are required to complete that goal. In this example, your most important tasks are to secure a domain name and then to select an e-commerce platform.

Only after you’ve tackled the most essential tasks within the most important goals should you proceed to address the remaining 80%. However, your primary focus should always remain with the most important 20%, constantly refining and perfecting them.

How to identify the winning 20%: focus on the essential

In order to identify the 20% that matters, first start with the most important goal and then work backwards. For example, if your goal is to set up a personal office, first create a checklist of all tasks required to accomplish that goal. You should end up with a dozen or so items.

Next, rank those items in the order of priority. You will find that only three or four of those items are actually essential to your goal. For example, communications (voice and data), a computer, a desk, and chair are probably all that you need to get started. All other items (e.g., desk organizer, filing cabinet, office accessories, photos and decorations, rug, etc.) are nice to have but are not so critical.

Not all customers, suppliers, processes, products, etc. are created equal

The 80/20 rule extends to every facet of your business. For example, about 20% of your customers will account for 80% of your business. Focus on those customers. Approximately 20% of your products will account for 80% of your revenue. Focus your marketing efforts on those products. And so on and so forth.

About Me

At age 45, I recently hit my "number." I'm now officially somewhat rich. I'm 100% debt-free with a net worth of over $7 million. While I still choose to work part-time to help run the business I started 15 years ago, I have plenty of free time to enjoy with my family, and I travel for fun frequently. But it wasn't always this way. Read more